A Physician-Owned Locum Tenens Co-op?

Today, I’ve got an interesting proposal from a group of physicians and entrepreneurs with whom I’ve spoken regarding their idea for a completely new take on the locum tenens agency.

>My experience with locum tenens (temporary work) began the Monday after I finished residency. I practiced exclusively as a locums doc for nearly two years, trying jobs before buying, and was offered a job in just about every place I worked.

Once I settled into a “permanent” job, I still did some locums on the side to keep different skills fresh and learn from different practice settings. I used locums jobs to audition for my next full-time job and to earn some money while in between gigs.

My current and presumably final job is at a place that I practiced first as a locum tenens anesthesiologist eleven years ago, and seven years prior to returning as an employed physician. My familiarity with some of the docs and the staff, and the positive impression I left when working there, made it easy to land the job and make for a smooth transition as the sort-of “new guy.”

Only in recent years have I become wise to the amount of money locum tenens agencies were charging the hospitals and groups I was working with. With the typical agency commissions, if I was being paid $150 an hour, the hospital was probably paying $200 to $220 per hour, and a substantial portion was withheld before I collected a check.

When you consider the fact that I did this for two years and put a lot of hours in, I probably earned a couple hundred thousand dollars for those agencies. It’s no wonder they don’t stop e-mailing, calling, and even texting. Landing one doc for an assignment of several months’ duration can be worth tens of thousands of dollars to the agency.

Could there be a better way? Could physicians reduce the overhead and even profit themselves from the agency fees?

The remainder of this post was written by a group who proposes an intriguing alternative to the status quo in the world of locum tenens. We’ll refer to them as the Locums Coop Initiative.

A Physician-Owned Locum Tenens Co-op?

Hello physicians!

We are fellow physician entrepreneurs with extensive experience in the locum tenens industry. This industry is still dominated by the locums agency middlemen and opaque business practices.

Some nascent developments like technology enabled marketplaces that can empower individual physicians are coming into the market, but at the same time, a trend has emerged of further consolidation in the form of MSP (Managed Service Providers). This has introduced yet another middleman to the process! It seems everyone is stepping in to get a cut of the value we create as physicians.

While pondering this and considering whether we can restore some balance to the industry and allow physicians to capture more of the benefits of their work, we thought, what about a technology-enabled locum tenens marketplace that is truly physician-owned?

As in a physician-owned and controlled co-op that is open, transparent & puts the power in our hands? Thus the ‘locums co-op initiative’ was born!

Wait a minute, you may say! Co-ops are for farmers markets and real estate, right? Not necessarily! Co-ops work well in a variety of situations including finance, food, energy, and transportation. [PoF: And breweries]

In researching this, we spoke to a leading co-op expert Adam Schwartz. This is what he had to say about it:

“The cooperative is the best business model because it has both an economic and social purpose. Over my years working with co-ops in the USA and around the world I have seen successful co-ops in all types of businesses and in every sector of the economy except the military. They can range in revenue from several million dollars to over $30 billion.”

He seemed quite enthused and thought this would work. He gave us parallel examples including his own ‘consulting co-op’! Buoyed by his response, we thought the idea may have some legs after all. So we tried to think this through further.

How A Physician-Owned Locum Tenens Co-op Could Work

So how would this work? In simple terms, physicians would purchase shares (membership interests) in the co-op to raise the capital needed to set up and run the co-op. Depending upon the amount of capital raised, the co-op may need to seek some loan financing too.

As members, the physicians would also commit to working a minimum number of clinical hours through the co-op.

The co-op will be managed by a co-op board elected by its members. The board will decide the strategy, the operational parameters and will select professional management to do the day-to-day running of the co-op.

The capital raised by the sale of membership interests will be used to invest in a technology-enabled marketplace where physicians would find locums work and hospitals/medical practices would post needs.

The physicians and employers would directly negotiate their prices and the co-op will charge a booking fee to the employers. This booking fee will be used to:

Cover operating expenses,

Provide cashback bonus to the physicians working the shifts, and

Pay dividends to the shareholder members.

The co-op board may decide that non-member physicians could still use the platform and negotiate great rates, but they would not receive any cash back or dividends, nor would they have any say in the matters of running the coop.

Running Some Numbers

Here are some numbers we worked out to illustrate the concept.

Let’s say a capital raise of $10MM is required to get this co-op off the ground (to build or buy the technology and for operating capital). Let’s assume that $5MM of that can be financed. The co-op will need to raise $5MM from physicians.

If each member invests $5,000, then this means that 1,000 physicians would need to sign up. If more physicians sign up, or if members invest more than $5,000 on average, the additional capital would be used to reduce the financing amount and make the numbers look even better.

We also assume that each member will promise to do minimum of 20 shifts a year using the co-op, and that it will have at least 20,000 shifts available. Let’s also assume that an average shift is negotiated at $2,000 and the co-op charges the medical practices only 15% in booking fees (booking fees are set at a low level of 15%, as most locum companies have margins between 30 and 40%, by contrast).

Let’s say, in the first year the co-op will have $2MM in expenses and finance charges.

Even with a small utilization rate of 25% (each member physician does only 5 shifts a year on average and a fraction of the shifts are done by non-members), the co-op will manage to cover its operating expenses to become cash flow neutral.

In the second year, the co-op, now established in the market with physician-members and physicians dedicated to working shifts, becomes even more attractive to hospitals and medical practices and books around 12,000 shifts for members and 4,000 shifts for non members. This is about 9 shifts per member per year by factoring in the membership growth, and will result in revenue of about $4MM! Cash flow positive!

If the co-op board decides to return 4% cashback on shifts worked by members, a member doing 24 shifts will get about $2,000 in cashback payments. Almost half of his or her investment! And the more a physician works through the co-op, the greater the return.

Here is a table that has some back-of-the-envelope calculations for you. (Obviously, if this idea is to be converted into reality, a detailed financial analysis will have to be done).

Assumptions:

Sample Financials:

Putting Physicians Back in Control

In the current environment of consolidation and corporate ownership, physician ownership of their practices is becoming rarer. Becoming members of a co-op would allow physicians to have an ownership interest in the healthcare marketplace and reclaim that sense of independence and ownership and control over our professional services.

The gig economy is everywhere, even in workforce management. We see marketplaces for handymen, technology workers, babysitters, and in-home caregivers. We have also seen the advent of the locums marketplaces. But having a marketplace that is owned and operated by physician members, now that would be interesting!

What do you think? Is this workable? Is this something that interests you? We would like to hear from you. We want your brutally honest opinion.

Co-ops, after all, are community endeavors and only succeed if the community feels strongly about it!

If you are currently doing locums or planning on doing so in the near future, please let us know by completing the survey below. You can take the survey anonymously. The first 100 physicians completing the survey will get a $10 gift card for amazon.com. [Update: the quota has been reached. Survey responses are appreciated, but unfortunately, the early birds got the goods. We would still love to hear from you, particularly if you have done locums or are considering working as a locum tenens physician in the future.]

If you were among the first 100 responders, rest assured that your email will only be used for sending you the card. It will not be sold or shared otherwise with any one to market to you, neither will you be spammed.

The survey also allows you to indicate if you would like to receive a detailed proposal for joining this type of co-op if it were to materialize. You will be sent such material only if you give your consent.

We want to thank our friend Physician on FIRE for allowing us to reach you. Please feel free to email us at [email protected] . We will try to address any questions you have as best as we can.

[PoF: What do you think? Could this be a viable alternative to the traditional locum tenens agency? Charging groups and hospitals at most half of the traditional fees, allowing physicians to negotiate higher rates, and allowing physician co-op members the opportunity to share in the profits?

What pitfalls do you see? If this were to come to fruition, would you willing to put up $5,000 to support the project?

40 comments

I think this sounds amazing. For far too long physicians have been letting non-physicians into their profession. This has resulted in loss of control of our own careers and loss of profits that end up in the hands of big businesses and executives. I would definitely be interested in signing up for something like this if it happens. Great idea

Totally agree Jason, my husband is the physician in our family and this has become a huge issue with mostly non-M.D. administration controlling the physicians if employed by a hospital or academic university. They now monitor RVU’s on a quarterly basis and adjust salary levels accordingly – This is pretty much the equivalent of a sales position and feel it’s extremely disrespectful to those providing the backbone of the institution. And they keep adjusting the formula making it harder and harder just to maintain one’s salary, contracts are a thing of the past and they now own the physicians. Sad that the medical profession has fallen prey to this type of management, no wonder the younger docs in particular want to FIRE, get out, or have more control over their hours and salary. Great idea to have the physicians run their own work related business.

It’s a fascinating idea, but I wonder how tight of a space this is and how easy it would be to gain access to hospital systems that need locums docs. Would the idea be to undercut their current contract to offer a better price? How long would the locum stents be? Who would pay for travel and lodging?

It seems like a good idea, but the details would need to be hammered out.

For me, personally, the idea of being able to pick up a 5-10 extra shifts per year in the area surrounding my W-2 income location seems appealing, though I am able to pick up additional shifts at my W-2 hospital, too, if I want to supplement my income.

This is the sort of business that may be challenging to get off the ground, because it requires buy-in… but that would presumably work once it’s in the air.

TPP, Your comments are spot on. Unless there is a significant commitment from the physician community, it will be hard to get the hospitals onboard. But an argument that ‘there are thousands of Temporary Physician Days (TPD) available’ might be compelling. There may even be a need to do similar survey of employers to find out! Since this is not a ‘bill-spread’ model. The travel and expenses can be either pass through to the employers or physicians can negotiate ‘all inclusive rates’.

I really like the idea for early FI docs. Once I reach my number I am not sure I want to stop working, but would like to work way less. Working 20 days a year in my private practice would be impossible, but 20+ days a year through a Co-op sounds feasible. Even if I only make 20-40k a year, if that is sustainable for 10-20 more years then that is a powerful tool in early Financial Independence. My mind is blown. I do worry that the only fields available will be ER and anesthesia.

Dear Physician Friends, Thank you for your comments and your survey responses. Please keep them coming. The more responses we get the better data we have to make a determination whether to proceed or not. We will be sending the gifts cards in the email to the first 100 respondents this week. We will post a comment when the cards have been mailed. Please check your spam folder in case you do not see a card. If you still do not see it and you believe you should have received it, please email [email protected] ( not to our friend FOF!)

Snowcanyon, We agree that physician-owned may be misconstrued but hopefully the word Co-OP will clarify it to be a member owned and managed entity. The Co-Op board will be responsible for strategies and membership policies. How to regulate membership would be up to the board elected by the members. But it will have professional employees recruited by the board doing day to day management.

I think this is an interesting idea, but it is clearly still a conceptual one at this point. All of the details will be what determines the validity and potential for this to become a real opportunity. For instance: – Right now the entire focus is on getting more money to physicians. What incentive do hospitals and health systems have to change the way they find docs? Are you going to undercut the rates charged by more traditionl locums agencies? – What are the implications of someone signing up and committing to work x shifts and then failing to do so? Penalties? Lack of access to prime future shifts? – I see new doc signups- what about attrition? Even the author of this post did locums for a few years and then settled into full time work. Need to have some plan around that. – Speaking of new members- how do you plan to sign up 1,000 docs in the remaining few months in 2018 when the are lots of details to work out and then only attract 100 in 2019 once people start to work shifts and spread the word to coworkers? That seems backwards… – Is there a strategy by specialty? There are obviously some specialties that are more conducive to locums work- will you focus on those first or seek to provide access to a wide range of specialties? – What support does the coop provide with credentialing, admin, etc? – what is the plan around dividends? Do these get remitted to members each year minus some capital reserve? – what happens if these projections are not met and there is a need for more additional capital? Are members on the hook the way homeowners are in a HOA?

I’m not saying that there isn’t a legitimate business here- just that it will take a good deal more planning before it’s certain to say whether the high-level projections are legitimate or not. Best of luck and hope to hear more as the idea develops!

You raise a really good points that will have to be addressed. The devil is in the details! And a lot more will be spelled out in the proposal , if ever made. But below are some initial thoughts.

I think this is an interesting idea, but it is clearly still a conceptual one at this point. All of the details will be what determines the validity and potential for this to become a real opportunity. For instance: – Right now the entire focus is on getting more money to physicians. What incentive do hospitals and health systems have to change the way they find docs? Are you going to undercut the rates charged by more traditional locums agencies?

The lower fees charged by the co-op and an ability to predict supply may address two big pain points. and draw them to this source for their needs.

– What are the implications of someone signing up and committing to work x shifts and then failing to do so? Penalties? Lack of access to prime future shifts?

Co-ops typically have bylaws that address these types of concerns. In this case, it could be a combination of: ballooning those unfulfilled shifts year to year, swapping the obligation with other members, a reduction/withholding of dividends etc.

– I see new doc signups- what about attrition? Even the author of this post did locums for a few years and then settled into full time work. Need to have some plan around that.

By its design, the member benefits are skewed to the members who use the coop the most. But coop will need policies on how to deal with members who cease to be active or wish to withdraw, or need to be terminated by board due to policy violations etc.

– Speaking of new members- how do you plan to sign up 1,000 docs in the remaining few months in 2018 when the are lots of details to work out and then only attract 100 in 2019 once people start to work shifts and spread the word to coworkers? That seems backwards…

Those were just back of the envelope calculations for a quick use case. You are right! Recruiting 1000 members will take some time. But till that happens, the coop is not operational because it does not make sense to go out without a strong availability of TPDs. If the coop fails to recruit those 1000 members, the deposits made by prospective members are simply returned back. A non operational coop does not have any expenses. Once operational, we stayed conservative on the membership projections. If the coop recruits more and books more shifts, numbers will only get better.

– Is there a strategy by specialty? There are obviously some specialties that are more conducive to locums work- will you focus on those first or seek to provide access to a wide range of specialties?

If it is technology enabled, streamlined and efficient, it should be able to handle most specialties. The sales efforts will track the member specialty concentrations! So it may be possible it will be skewed to EM, HM, Anesthesia, FM, Psychiatry in the initial days.

– What support does the coop provide with credentialing, admin, etc?

The technology needs to be robust to automate a lot of information exchange. The professional staff working for coop should facilitate any human interactions needed.

– what is the plan around dividends? Do these get remitted to members each year minus some capital reserve?

Up to the board to decide. The calculations we did use what you proposed.

– what happens if these projections are not met and there is a need for more additional capital? Are members on the hook the way homeowners are in a HOA?

Yes, the board again will have the responsibility to make sure it is funded. If funds are insufficient, they may employ a variety of ways. However, we do not envision HOA style mandatory assessments. It would be more like an additional round of financing and dilution that members could choose and participate in.

I’m not saying that there isn’t a legitimate business here- just that it will take a good deal more planning before it’s certain to say whether the high-level projections are legitimate or not. Best of luck and hope to hear more as the idea develops!

My advice is “Malpractice Insurance Transparency”. When I did locums this was my main criterion for choosing an agency. I would happily make a little less knowing their was a separate fund to keep the policy in force and that I would be covered.

I think if this were successful, it could potentially challenge the VC-owned staffing agencies and move into the markets staffed by Envison etc. Such groups are successful because they take away liability and staffing headaches (the latter via in-house locums groups) from hospitals, especially in less-desirable markets.

There is no reason why a co-op couldn’t offer the same benefits to hospitals. This could go far.

I think a co-op is a great idea for physicians and would be welcome by hospitals if the hospitals knew they were getting quality locum physicians and could get the doctors for a little less money than traditional locum companies. Would there be an option for physicians to sign on as co-op members and perhaps pay a higher initial sign in fee in lieu of doing shifts now if their current contract does not allow outside work?

Hi RocDoc, We briefly looked at the possibility of creating different membership classes (the members who commit to shifts and members who do not). That is an option theoretically. Perhaps other ways ( reduction of dividends in lieu of shifts) may offer more control to the board over rigid structures like that. Because if the coop has more shifts available than can be filled, the co-op board can reduce the shifts requirements across the board more easily! But making a note of your suggestion.

Fantastic idea and moves in the overall direction of the healthcare economy. We may not own the “bricks and mortar,” but we can own our labor and skill set. Definitely interested to hear more if this progresses.

Well put, TheBossMD — we own our own labor and skill set. It’s been gratifying to travel and work with patients but demoralizing to be treated as a commodity, with less and less control over the work. I also wish it were more widely known that locums companies charge exorbitant fees on top of our pay — in my experience people thought I was earning all of that!

I think the proposal of a physician owned and run locums co-op is an ingenious idea, hope it comes to fruition with including many specialties other than those who mainly do shift work. My husband is the physician in our family (pulmonary/crit care but currently practicing pulmonary only), and he’s considered locums in the future to cut back and have more control over his hours and salary. If this co-op supported his specialty, especially in our geographical area, I’m pretty sure that he would be interested. I’d even contribute but couldn’t do medical shifts. Hmm.. perhaps a solution to more funding if open up to spouses as a joint business effort..?

Hi Sandy The key would be to have a technology enabled solution ( think AirBnB). This solution ought to utilize the power of social and professional networks too! Co-op model will not work well if it has to employ an army of sales people trying to get jobs and an army of recruiters trying to get docs! Making it easy for medical practices to find physicians and negotiate with them will reduce the barriers. Ultimately, nothing beats the power of unity. If there are enough Pulmonary physicians signing up on the platform and insisting that this is how they want to find work instead of traditional locums, the employers will perhaps follow. As another user pointed out, getting it off the ground will mean fighting the status quo. OTH if the coop only attracts certain specialties in large numbers, then that is where the action will be. There is also a great value in having key opinion leaders in each specialty area championing this effort.

I had thought about such a platform for a long time! I foresee such a project, if done right, would be a huge success! A well-designed platform will be essential. For example, having checkboxes for all state active licenses, board certifications, distance willing to travel, a calendar to check off availability dates, checkboxes for different skills (Intubations, etc…). Same thing for potential hospital postings (skills required, etc…) Speaking of the power of unity, maybe hospitals will also stop demanding unreasonable workloads (The offers I see call for covering the hospital/ER and rounding on a list of inpatients while seeing a full schedule of clinic patients)

Interesting idea. I’m an experienced locum tenens physician and wanted to touch base. I have worked locums as a 1099 and W2 for over 10 years. I would be happy to share ideas with you regarding your employment model.

My new book, “The Locum Life: A Physician’s Guide to Locum Tenens” will be published first quarter 2019. I think it would be useful reading for all your potential participants.

I did locums and hired locums. Private locums who were not supplied by a national firm were cheaper. You have to be careful of facilities. Some facilitates are not accredited and the anesthesia equipment is crap. This can be quite dangerous. If you want a steady workforce figure out how to provide some healthcare options to your members. Licensing can be a big PITA. One solution is for members to bring their licenses and work in those states. That would be a scheduling headache but might be do-able.

Make sure there is membership only. Ownership will lead to problems when it comes time to separate. If you allow ownership then buyout is a fixed price say 5k in 5k out I speak from experience. There might not be as much margin as you think. When I did locums I stayed in one state, traveled around using my own car, brought my wife and only did 3 to 6 month gigs. This allowed us to usually get a condo on the beach since I wasn’t flying home all the time and could give the facility maybe a little cheaper price. Cheaper price means booked solid employment.

Gasem, Some hard earned knowledge there! Thank you for sharing. As we responded to another user. The idea is to only have ‘membership’ ( not ownership separately). The main goal is to reward members year after year. Not ‘stock appreciation’ in the traditional growth companies sense. In talking to the experts and looking ( cursorily, at this point) it appears to be a ‘solved problem’.. many people have figured out how to do this and the regulations have kept up to support such structures. One point no one explicitly mentioned thus far is ‘Politics’! Co-ops as they get bigger, tend to become political places but that’s in the nature of the beast and may not be all bad!

The way you manage the politics is you have a group norm of being satisfied with 90% of what you want. I had this norm in my group. When people start angling for 95 or 98% fireworks happen. If people get 90% of what they want they are satisfied. Also you have to watch for kingdom builders. Those people get to go play in their own sandbox. Make the rules to allow the survival of the co-op not maximize the freedom of the individual. Then it’s take it or leave it for the individual practitioner. Democracy won’t work. In the end you need somebody/s in charge buy neither will tyrranny

I think it’s a great idea. I only do locums at this point (but did about 25 weeks last year), and it has been a great thing for me. I left my contact info, and if you proceed, I’m in!

Getting more control for the docs is important. Gasem is right…make sure (at least in anesthesiology) that the equipment/facility is quality. (One place I went didn’t have any equipment for handling a difficult airway!!!!…but wanted GETA).

You are right in saying ” make sure (at least in anesthesiology) that the equipment/facility is quality. (One place I went didn’t have any equipment for handling a difficult airway!!!!…but wanted GETA)”

The technology enabled solution must have reviews and ratings where the physicians who work at a place get to rate the facilities and provide reviews. ( and the other way round). The other thing the technology needs to do is to require the jobs to follow the same template so all the information is consistent and comparable. Allow physicians to ask questions to the recruiter is the third thing that will add to the mitigation further.

You’re taking the approach of undercutting the competition on costs, hoping to gain market share through charging less in fees if I’m not mistaken. I’d like to see an analysis of where exactly the money goes from the mark-up being charged right now by locums companies and how exactly you’re going to undercut that while still performing the necessary tasks. You’re dealing with multiple specialties, different market rates for pay, different malpractice risk assessments, changing state regulations, keeping up to date on physician licensing – that requires a lot of overhead and significant knowledge in these areas.

Hi ENT Doc We did not start in vacuum. The key is to use Technology to scale this. A lot of work has been done but much work is needed still!

The next steps are 1. publish the survey results via FoF 2. Get a similar survey from employers to see if there is a buy in. 3. Figure out the legal & operational structure. 4. Identify and quantify risks and device mitigation strategies. Based on the items above, make a Go/No Go decision. If it is a go then we will need to 5. Create a plan to operationalize it 6. Create an enrollment plan 7. Create detailed analysis/term sheet etc. 8. Put the plan in action We hope you have filled out the survey and left us an email to send you material. ( Or number to call) Will share detail calculations and the full plan of operationalizing this with everyone interested.

I respect the fact that work has been done on this already. But it would be a much easier sell if you could describe how exactly you’re going to cut fees by 50% or more while maintaining a functional product. Are you saying that 50% or more of the fees are simply due to unnecessary waste and that a technological platform will solve this while still allowing for dividend payments? Physicians buying into this want to know that they’ll both get paid the current market rate and get a return on their $5k investment. Employers will want to know that your product will be around, worthy of trust, and worth switching from your competitors. Saying a technological platform will solve this may very well be true, but where are the numbers to support that? Your strategy is based on this concept and describing where exactly the waste is currently would make for a more convincing pitch.

Agreed ENT Doc. What we have thus far is not enough for anyone to pledge money. But all we asked was their thoughts and intent. We will provide you (and everyone who has expressed interest) the details we have worked out.. seek help/direction from the early adopters as well as opinion leaders to find gaps and fill those. Make adjustments along the way….Please stay with us. This will take a month or two to evolve. If we all find it to be a No Go, so be it. No point in forcing a throw for an interception. please email [email protected] if you have any additional questions…

I am sure you are aware of the other hoped-to-be disruptors in the locum area. luciditydirect.com and nomadhealth.com (and likely others) seem to be facing major headwinds. Hard to know who will be airbnb and who will be Couchsurfing.

This is a great initiative! Given my interest in humanitarian medicine, I’ve often thought about how beneficial it would be for physicians to be able to travel-hack their locums arrangements to help with their humanitarian travels. Perhaps a locums co-op would help docs take full advantage of these types of perks to further their missions in addition to increasing our profits.

We have made some progress on how to operationalize this. We have received interest from about 300 or people. We will be sending them a detailed email with the next steps required. If you would like to receive that email and have not provided us your contact info, please email us at [email protected] also watch the website locumscoop.org It will go up next week and will have more information The Locums Coop Initiative.